Moving Crude by Railcar Stalls on the Track
Heightened Safety Concerns, Slow Permit Approval Hinder Some
Wall Street Journal
5 December 2013
By Alison Sider
Companies that thought they had found a relatively easy way to
move crude from the booming oil fields of North Dakota to the West
Coast are encountering obstacles.
Half a dozen companies are trying to build rail terminals on the
coast of Washington state to receive trainloads of crude from the
Bakken field in North Dakota. The oil would then be transferred to
ships and barges that could carry it to refineries in the Pacific
Northwest or south to California.
Analysts say regulatory hurdles make it difficult to build the
necessary rail yards and tank farms in California, and it's more
expensive to ship crude there. But getting a permit in Washington
is proving more challenging than companies expected.
Targa Resources Partners LP recently called off plans to build a
new crude-oil tank farm and rail yard at the Port of Tacoma,
saying it was "unable to identify an economical path forward." The
company, which didn't return requests for comment, applied earlier
this year to get a permit from a regional clean-air agency that
would allow it to ship crude by barge from its existing facility
at the port, but that is still being reviewed.
And in the wake of this summer's train derailment in Quebec that
killed 47 people, some groups are vowing to stop projects that
would increase the number of oil trains rumbling through
"The whole enterprise raises serious concerns about the heightened
risk of transporting crude by rail," said Devorah Ancel, a staff
attorney for the Sierra Club, an environmental advocacy group that
has opposed some of the crude-by-rail projects at Washington
Companies that want to transport crude by rail say the risks are
minimal, and the rewards are great. Refiners have said shipping
crude by rail from North Dakota to Washington is a bargain at as
little as $10 a barrel, compared with $13 to $16 for a barrel of
crude to travel by rail to California and $16 to ship a barrel to
the East Coast.
Bakken oil production has soared in recent years but pipeline
capacity hasn't kept pace, so energy companies are increasingly
relying on railroads. Some refiners with plants in Washington,
such as Phillips 66, BP PLC and Tesoro Corp. , have built or
received permits to build the infrastructure they need to unload
more crude from railcars.
But projects planned for some of the state's ports, where oil
would be unloaded from trains, stored in tanks, and transferred to
barges, have attracted criticism. A state hearing board recently
overruled the City of Hoquiam, southwest of Seattle, which had
issued permits to expand two terminals at the Port of Grays
Harbor, east of Tacoma, to handle crude.
Westway Terminals, which already stores methanol at the port,
wants to add tanks and a rail connection so its terminal can
handle as much as 9.6 million barrels of crude a year. Imperium
Renewables Inc., which makes biodiesel from vegetable oil at a
plant at Grays Harbor, plans to expand so its terminal will be
able to store and ship crude oil, jet fuel and gasoline.
The Quinault Indian Nation and conservation groups had challenged
those permits; the state board said the companies need to provide
more information about how a possible third terminal proposed by
U.S. Development Group LLC, which is under consideration, would
affect rail and marine traffic.
John Plaza, Imperium's CEO, said the company disagrees that "any
proposed project at another site—anyone who can imagine doing
something—provides the basis for denying our permit." Both
Imperium and Westway say they will continue to push for permits,
while opponents say they will challenge them.
The prospects for crude-by-rail expansions are even worse in
California, where there is opposition to "introducing new oil or
gas or anything that has a reputation for being unclean," said Sam
Margolin, an analyst at Cowen & Co.
Valero Energy Corp. , the largest U.S. refiner, had hoped to
receive permits by year-end to add rail unloading equipment at its
refinery outside of San Francisco. But the company has said the
project has been pushed back to the end of 2014 or the beginning
of 2015 because of permitting delays.
Phillips 66 has applied for a permit to extend a rail connection
at its Santa Maria refinery in southern California, and to
construct a railcar unloading facility there so the plant can
bring in more North American oil.
The company hopes to start construction on the project next year
and having the rail connection up and running in 2015. Dennis
Nuss, a spokesman for the company, said Phillips 66 is working
with the county to get the permits it needs and to quell local
concerns about safety.
In Washington, Tesoro has pinned its hopes to plans for a terminal
that would be able to handle deliveries of as many as 280,000
barrels of crude oil a day at the Port of Vancouver. From there it
is a short barge ride down to its refinery near San Francisco.
The company said it is optimistic that the $100 million terminal,
a joint venture with logistics firm Savage Companies will get
Washington Gov. Jay Inslee's approval and could be up and running
late next year. Kelly Flint, general counsel for Savage, said the
company is confident that it can usher the project through the
state's one-year permitting process without delays.
Mr. Flint said the company didn't settle on Washington to avoid
California regulations, but chose the Port of Vancouver because of
its advantages. "It can service a number of refineries, it is the
closest deep water port to the Midwest oil fields by rail," he
said. "The rail infrastructure there is great."
Write to Alison Sider at email@example.com